Australia

On reflection: Why Australia should not give up on renewables

As the government battles to reduce the current renewables policy, the Australian wind industry is experiencing lost jobs and dwindling economic opportunities. Yet, there is a clear economic case for continuing renewables support.

(Stock Illustrations Ltd/Alamy)

Uncertainty and missed opportunity have been the recent themes for the Australian wind industry. While the country's renewable energy target (RET) had enjoyed well over a decade of bipartisan support from the major political parties, the federal government plan to slash the level of the policy froze investment and resulted in many lost jobs and economic opportunities last year.

But the government does not have enough support to change legislation, and so the debate drags on. And, while the government looks for support from the opposition or a rag-tag alliance of senators from various smaller political parties, the RET's uncertain future means the country is squandering billions of dollars in potential investment while interest in wind power and other renewables flourishes across the globe.

The national RET, set in 2009, underpins the vast majority of investment in wind power and other renewables in Australia. The legislated target will see new renewable energy generation ramp up to 41TWh a year by 2020. Some believe the target provides certainty to a valuable industry, and there is no need for change, while supporters of the government plan to cut the target believe the RET pushes up the price of electricity for consumers and that no additional generation is required as the national electricity market is in oversupply. But evidence suggests such arguments don't stack up.

The renewable energy target review report commissioned by a government panel concluded that while retail power prices will be slightly higher in the short-term with the target in place, repealing it will result in higher prices in subsequent years.

High power prices

The review undertook comprehensive modelling of prices. It found that any scenario in which the RET is cut would result in higher power prices for consumers from 2020, and that the scenarios that would deliver the most renewable energy were those that would also result in the lowest power prices over the life of the legislated policy. With the RET as it is, more than 18,000 jobs would be created and power bills would be lower in the long-term than they otherwise would be. Cut the RET to 27TWh by 2020, and 6,200 jobs will be lost and the average power bill will go up by A$42/year. Remove the RET altogether and by 2020, 11,800 jobs will be lost and the average power bill increases by A$56.

One of the reasons for this is that there is direct evidence of wind energy pushing wholesale electricity prices down. The Australian Energy Market Operator found in 2014 that in South Australia, the state with the highest wind penetration, wind farms have "low operating costs and tend to offer energy to the market at low prices". As well as increasing competition in the energy sector, many renewable technologies can operate more cheaply than traditional fossil fuels such as gas, which has risen rapidly in price this decade.

Renewable energy's effect on suppressing wholesale power prices, along with the surplus generation capacity, has hit the profitability of existing coal-fired power plants. Many coal-plant owners have called for cuts to the RET and help to close down some older power plants.

A range of different mechanisms could be employed for assisting with an orderly withdrawal of surplus fossil-fuel generation capacity. However, to date the government has ruled out intervention to assist older power plants to exit the market.

In the event of a positive resolution to the RET review, the existing project pipeline means there will be a lot of work to do in the next few years.

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